According to the biannual economic update South Asia Economic Focus Fall 2015, Sri Lanka’s fiscal consolidation will be challenging in 2016 and beyond unless permanent revenue measures are implemented.

The report titled ‘Getting Prices Right – The recent disinflation and its implications’ released on October 02 says structural challenges include increasing fiscal revenue and narrowing a persistent current account deficit linked to structural competitiveness issues in the export sector.

Meanwhile, the Ceylon Chamber of Commerce warns the proposed Finance Bill will discourage private sector investment.

The CCC says in a statement,

The Ceylon Chamber of Commerce (CCC) believes that the Finance Bill of March 2015, presented to Parliament recently sends a negative signal to the private sector and is likely to deter investment. This is unfortunate since the Bill comes at a time that the Sri Lankan private sector was gearing itself to partner the Government in realizing the full potential of the Country’s economy. However, the proposed bill is likely to be perceived as a serious impediment in building a credible and deep partnership between the Government and the private sector. Therefore the Chamber urges suitable amendments, prior to the enactment of the Bill.

Since the proposed taxes are retrospective, it signals an absence of policy stability and consistency, which are crucial for enticing investment. For instance, the Super Gain Tax (SGT) is based on profits declared during the financial year 2013/14 whilst the proposed threshold of Rs. 2 billion and the rate of 25 percent are both arbitrary and deviate from the generally accepted principles of taxation. In terms of the provisions of the Bill, subsidiaries of group companies, with individual profit levels below the threshold will also be liable for SGT if the aggregate profit of the group exceeds Rs. 2 billion and the absence of marginal relief makes the SGT inconsistent with the existing taxation policy.

Pursuant to over 30-years of instability, the foremost expectation of all concerned, including the private sector was for the government to establish rule of law and policy stability thereby creating an environment for strong, sustainable economic growth. Such expectations were based on assurances given during the recently concluded Presidential and Parliamentary elections. While the Ceylon Chamber endorses the positive initiatives taken by the government to restore rule of law, good governance and stability, the proposed Bill is contrary to the expectations and sends negative signals to investors, both local and foreign, thereby putting at risk the growth potential of the Country.

Revitalizing an underperforming economy, creating employment and increasing household incomes are all priority objectives of the government. The Chamber has consistently extended its full support towards these objectives and has championed confidence building between the Government and the private sector. It is in this context that the Chamber urges the government to be proactive and create an environment that supports investment and to review and amend the proposed Finance Bill even at this last stage.